Feb. 6 (Bloomberg) -- Coca-Cola Co. agreed to buy a 10
percent stake in Green Mountain Coffee Roasters Inc. for about
$1.25 billion and work with the maker of Keurig coffee brewers
to introduce a system for producing single-serve cold drinks.

Coca-Cola is buying the 16.7 million newly issued shares
for about $74.98 apiece, the companies said yesterday in a
statement. Green Mountain shares surged 29 percent to $103.97 at
10:51 a.m. in New York and earlier advanced as much as 37
percent for the biggest intraday gain since March 2011.

Coca-Cola has struggled to keep consumers who increasingly
shun its best-selling sodas for alternatives such as iced
coffees and energy drinks. Teaming up with Green Mountain on new
beverages will help Atlanta-based Coca-Cola boost sales, said
Marc Riddick, an analyst at Williams Capital Group LP in New
York.

“It’s sales growth that they themselves would not be able
to access without that platform,” Riddick said in an interview.

The move fits into Coca-Cola’s preferred strategy of taking
equity stakes in promising new brands and technologies, such as
Zico coconut water and Honest Tea, and helping incubate them.
Coca-Cola eventually acquired all of Zico and Honest.

“This is not a zero-sum game, it just provides more
opportunity for our brands,” Coca-Cola Chief Executive Officer
Muhtar Kent said yesterday on a conference call.

Coca-Cola has the option to raise its stake to as much as
16 percent during the first 36 months, said Ben Deutsch, a
company spokesman.

Consumer Preferences

The companies are working together on the Keurig Cold
single-cup beverage brewer that will be sold in Green Mountain’s
fiscal 2015, which starts later this year. Green Mountain will
make and sell Coca-Cola-branded pods to go with the machine.

“This is what consumers told us they wanted,” Green
Mountain CEO Brian Kelley said on the call. Coca-Cola cold-drink
brands are “popular,” he said.

Still, Green Mountain will partner with other cold-beverage
companies to sell single-serve pods that work in the Keurig
Cold, he said. Kelley declined to discuss what other brands may
be added and didn’t rule out PepsiCo Inc.

“We will have a number of partners and a number of brands
on the system,” he said.

Jeff Dahncke, a spokesman for PepsiCo, declined to comment.

The Green Mountain-Coca-Cola partnership will ratchet up
competition for SodaStream International Ltd., a Lod, Israel-based company that makes home carbonation appliances and soft-drink syrups. SodaStream shares rose 6.7 percent to $38.18, and
Coca-Cola climbed 1.4 percent to $38.13.

Buffett Advice

Warren Buffett, 83, who controls the largest investment in
Coke, didn’t respond to a request for comment about yesterday’s
deal left with an assistant at his Berkshire Hathaway Inc.

Buffett has advised Kent to stay ahead of competitors by
being proactive. Last year, at the soda maker’s annual meeting
in Atlanta, the executives shared the stage to help sell the
company’s message to shareholders.

“I like to study failure,” Buffett said. “We want to see
what has caused businesses to go bad, and the biggest thing that
kills them is complacency. You want a restlessness, a feeling
that somebody’s always after you, but you’re going to stay
ahead.”

Buffett spent $1.3 billion accumulating its Coke stake
through the end of 1994. The investment is now worth about $15
billion. The Berkshire chairman and CEO once served on Coke’s
board and his son, Howard, has been a director of the soft-drink
maker since 2010.

New Machines

Kelley has been introducing new brewing machines and
increasing advertising to get consumers to continue buying
Keurig K-Cup packs. The Waterbury, Vermont-based company has
been seeing more competition as grocery stores including Whole
Foods Market Inc. begin selling private-label coffee pods.

Green Mountain’s net income in the three months ended Dec.
28 increased 28 percent to $138.2 million, or 91 cents a share,
from $107.6 million, or 70 cents, a year earlier, the company
said yesterday in a statement. Excluding certain items, profit
was 96 cents a share. Analysts estimated 90 cents, the average
of 14 projections compiled by Bloomberg. Revenue rose 3.6
percent to $1.39 billion, trailing analysts’ estimates.